Payers vs regulators – can pharma survive?

As regulators and payers fight for supremacy, how will pharma fare?

There was a time not so very long ago, when bringing a new drug to market was a relatively simple affair. A new compound was identified, its efficacy and safety were demonstrated to the satisfaction of the regulatory authorities and then it was over to the marketers to carve out as profitable a share of the market as they were able. Pre-marketing communications, supported by key opinion leaders, were focused on the medical profession.

Today things are patently not like that. In most markets, even the US, the vast majority of the cost of treatments is borne by the country, thus rapidly escalating healthcare costs, and a need to balance budgets has led payers to adopt ever more stringent strategies to limit the introduction of expensive new medicines. Pre-marketing communications is now characterised by the need to relate to a multitude of stakeholders, most of them financial or political rather than clinical.

This in turn has led to an almost comical and competitive double act of regulators and payers operating in parallel to demand ever more data from companies and squeeze the R&D pipeline of all but the richest of them.

Drug regulators and payers have distinct roles and information needs. Crudely, regulators are looking only at the risk–benefit of a new drug – does drug A do more good than harm in a defined group of patients. If this simple equation is satisfied then market authorisation can be granted – even if there are already a host of similar drugs available. Payers, on the other hand, are looking to optimise the outcomes for a defined group of state-insured patients; they are looking for benefits over and above that of drugs already on the market, taking into account budgetary constraints. This involves looking at health outcomes as well as the cost implications of two or more drugs.

Increasingly payers are using a measure called Relative Efficacy (RE) as a first step beyond risk–benefit analysis and before a full health economic assessment, to assess the fitness of a new drug for reimbursement. RE is the quantification of the difference in health benefits accrued by different treatment alternatives. If you have never heard of the term, it's certain you will become very familiar with it as regulators and payers fight for supremacy in the market access process.

Many payers and Health Technology Assessment (HTA) agencies such as NICE in the UK or IQWIG in Germany are conducting a second, independent analysis of cost–benefit, often arriving at different conclusions to the regulators.

As RE (and in the US Comparative Effectiveness Research [CER]) becomes more important to payers, we can expect to see a number of important effects:• RE/CER will become the key criteria for go/no-go decisions in the pre-marketing phase of drug development• A business model based upon RE is likely to see the disappearance of 'me-too' drugs and instead an R&D focus on the development of superiority claims often for small patient populations• The separation between regulators and payers will have to be overhauled and this change mirrored in the structure and unification of regulatory affairs and market access groups within companies• Industry will need to conduct more post-marketing research and accept the need to demonstrate comparative effectiveness.

There are many who hope that RE assessment and the alignment of regulator and payer needs will sustain interest in drug development and investment; industry groups such as EFPIA and many national HTA agencies are certainly working together to try to make this happen.